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Kyndryl (KD) is plunging after reporting its Q3 results this morning. The mission-critical IT infrastructure services provider fell short of expectations on the top and bottom line, with revenue increasing just 0.6% yr/yr to $3.77 bln. However, spooking investors was a reset lower to its FY26 guidance and the abrupt departure of its CFO, General Counsel, and Controller, which comes on the heels of a delayed 10-Q in which the company expects to report material weaknesses in its internal control over financial reporting.

• KD now expects FY26 revenue to decline 2-3% in CC, down from +1%, as AI-driven complexity, data-sovereignty uncertainty, and slower ERP-to-cloud migrations extend sales cycles.
• Guidance was also pressured by two company-specific headwinds, the evolving IBM spin-off and customer consumption shift reducing signing sizes, and investments in Consult taking longer to convert into revenue in a slower close environment.
• There were bright spots, with hyperscaler-related revenue up 58% yr/yr to $500 mln, keeping KD on track to reach nearly $2 bln in FY26, ahead of its original $1.8 bln target.
• Consult remained strong with revenues up 24% yr/yr on modernization demand, and while signings dipped 3% yr/yr, trailing 12-month signings were $15.4 bln, supporting a book-to-bill above 1.0.
• The 3 As (Alliances, Advanced Delivery, and Accounts) continue to support margin gains through greater automation via Kyndryl Bridge, higher-value work through alliances, and ongoing remediation of lower-margin legacy contracts. KD is also embedding more agentic AI into service delivery to boost efficiency.
• Recent signings reflect higher-quality economics, with projected gross margins in the mid-20s and projected pretax margins in the high-single digits as the mix shifts toward post-spin contracts.
• On the delayed 10-Q, KD said its Audit Committee is reviewing cash management practices and related disclosures, including drivers of adjusted free cash flow. It does not expect an impact to its financial statements.

Briefing.com Analyst Insight

Today's selloff is less about single quarter performance and more about confidence. The guide-down is a step back, reflecting more pressure from a complex buying environment, along with company-specific headwinds tied to the evolving IBM relationship and the timing of recent investments. The bigger issue is the abrupt departure of key leaders and the delayed 10-Q, alongside the company's expectation of material weaknesses in internal controls, which has weighed on sentiment and raised questions around governance and disclosure. That said, Consult and hyperscaler-related revenue both posted strong growth, and KD still expects continued margin progress as post-spin contract mix improves and its initiatives take hold. Ultimately, though, those positives are being drowned out by leadership turnover on top of the review process, and KD likely needs outline a credible remediation plan and deliver a few cleaner quarters before confidence can meaningfully rebuild.